Those of us who have rubbished Ed Miliband for most of his leadership now have some thinking to do. Two years ago, he told us about his idea of “predator” companies, and we laughed. He then introduced a new idea, “pre-distribution”, and we cried. Would he really try to fine-tune society by issuing edicts to companies he didn’t like the look of? It seemed a joke, but it’s not so funny now. All this time, Ed has been working on a new theory which he presented this week. It is radical, intellectually coherent and – worst of all – popular.

The first real hint of this was given when he arrived at the Labour Party conference last weekend and addressed a small open-air rally. “When will you bring back socialism?” he was asked. “That’s what we are doing, sir,” he shot back. Now we know what he meant. Can’t find a house to buy? Red Ed says he will order the landowners to build more homes, or have their land confiscated. Can’t pay your energy bill? Red Ed will instruct companies to keep the price down. It’s time for the state to put a bit of stick about, he says. Voters will benefit, and those nasty companies will pay.

But his analysis goes deeper. You will not be helped by the Tories or the Liberal Democrats, he insists, because they are run by the rich, for the rich. David Cameron is not like Margaret Thatcher. Just look at his friends. His is a kind of Brideshead Conservatism, dictated by a handful of people who have only known the life described in Evelyn Waugh novels. They won’t stand up to big business, because their lot never do. Cameron boasts about an economic recovery. But for whom? For the rich. As Miliband said in his speech, “the rising tide only seems to lift the yachts”. Vote Labour, he assures us, and the hand of government will lift every boat in Britain.

It would be a grave error for Tories to dismiss all this as the Labour leader grave-robbing the 1970s and donning the political equivalent of flares and platform shoes. Fashions change, and a lot of voters may regard his as a good look. Crucially, Miliband is quite right about a “cost of living crisis”, which coexists with superficial economic recovery. Salaries are pinned to the floor; official forecasts suggest they’ll stay there for years. By 2015 George Osborne’s recovery may look phony, and Miliband’s offer of lower electricity bills will be as popular as his hints about cheaper houses and upping the minimum wage.

It’s nonsense, of course. Anyone who lived through the 1970s knows that price caps fail everywhere they are tried. Government can create shortages (through price controls) or surpluses (through subsidy). But ministerial diktat can never make a market work properly; only proper competition can. This, anyway, is the conclusion from the past four decades of economic history. But Miliband thinks differently. As he told Charles Moore in an interview with this newspaper, he regards capitalism as iniquitous and socialism as the remedy. He is now saying that, if elected, he would try to prove it.

There is a remarkable intellectual consistency to all this. His advisers perhaps advise against the s-word in speeches but its principles have been there all the same. Two years ago, he promised to “chart a new course”, arguing that “the financial crisis should make us look deeply at the rules by which our economy is run”. His “pre-distribution” implied a radical idea: that it was not enough to tax companies’ profits. Businessmen should be bossed about, to introduce “fairness” in what they charge and what they pay. Last year, even more ominously, he said Britain needs “companies that reflect the values of our society” – by which he means the values of a Labour government.

It is now impossible to call Miliband weak or vacuous. The scale of his ambition is breathtaking. And terrifying. If he’s worried about the cost of living, then the petrol companies will be next to be cast as “predators”. Perhaps the supermarkets, too. The banks can expect regular punishment beatings. And as we saw in the 1970s, the result is an investment drought. Companies will refuse to buy land if they fear it can be confiscated by a government unaware that the real problem lies in mundane issues, such as Section 106 planning permission. Energy firms pull back investment. The state moves back in. Things fall apart.

Tories can say this is economic madness, but they cannot deny Miliband has a tempting message: vote Labour and we’ll freeze your fuel bills. Cameron has always struggled to come up with doorstep messages, which is why he failed to win a majority at the last election. Voters struggled to see just how they’d be better off under the Tories. Yet he cannot fight the next election saying that Miliband’s theory is doomed because it violates Stigler’s law of supply elasticity. He’ll have to come up with his own clear offer. He will need to offer tax cuts.

The Tories must accept that the cost of living is a major problem that demands a remedy. Miliband’s policies, like all socialist theories, are too complicated to work. Even if he did build 200,000 houses, this would increase the nation’s property supply by less than 1 per cent and not make a blind bit of difference to prices. Issuing edicts to energy companies means bills will soar before (or after) the freeze.

Government cannot regulate for a higher standing of living. But it can make people better off by spending less of their money. And Cameron will, in 2015, still be overseeing a state machine that has grown out of all proportion to its usefulness. Even Miliband has accepted that he’d need to cut, so the big election question is not investment versus cuts. It is: how will the next government make you better off? With Miliband’s interventionist follies – or Cameron’s bankable tax cuts?

I have the dubious honour of having christened Miliband “Red Ed”, and at the time I meant to mock the way he positioned himself during Labour’s leadership contest. A dull and robotic policy wonk seemed suddenly to discover opposition to the Iraq war and love of the unions – so as to differentiate himself from David, his Blairite brother. After winning, Ed introduced a test that he applied to new policies. He’d ask aides: would David have done this? And, if so, why did he bother standing against his brother? He wanted a distinct agenda, he told them. Now he has one.

The Ed Miliband we see before us is one of the most intellectually interesting figures in British politics. He is also one of the most dangerous. He is a dismal tactician, who could not even make capital out of stopping David Cameron’s headlong rush to war in Syria. He loses most battles in day-to-day political combat. His television performances range from dull to soporific. He is offering ideas buried under four decades of dust, whereas the Prime Minister has a list of fresh Conservative achievements that have actually helped the poorest – ranging from (modest) tax cuts to school choice.

Still, it has to be admitted that Miliband has changed the record. He has been bold enough to put his new brand of populist socialism at the heart of British politics, and offer a clear choice to the public. The tedious era of “triangulation” is finally dead and was buried in Brighton. In its place, a battle between two very distinct parties with clashing ideas about society, prosperity and freedom. Cameron should be grateful; it should focus the minds of Tories who had been toying with Ukip. The stakes at the next election have just risen considerably.